Labour should read Fallow

December 16th, 2009 at 1:05 pm by David Farrar

The moment there is a small upturn in the economy, Labour is already pushing for a splurge o . This is reckless, and fiscal restraint is needed for not just a year or two, but probably a decade. Brian Fallow explains:

The net effect of a reduced tax take and much higher public spending will have given a boost roughly equivalent to 6 per cent of gross domestic product over the two years to June next year.

That was entirely appropriate.

But the recession’s legacy of a shrunken tax base, a string of deficits and mounting debt servicing costs will cast a dark and cold shadow over next year’s Budget. …

It will be 2016, if we are lucky, before surpluses return, and every year in the red adds to the public debt burden.

It is a recipe for interest costs to eat up more and more of the future tax dollar, well before the echo of the baby boom sends health and superannuation costs through the roof. It is not sustainable.

Spending needs to be restrained, and to shrink as a proportion of the economy.

Fran O’Sullivan writes:

It doesn’t want to “rip the guts” out of the Government’s expenditure line. But if the Government holds new Budget spending to a constant $1.1 billion increase each year, over time this will have the effect of pulling Government spending back down towards 30 per cent of GDP and, in Key’s words, “force change through the system”.

This is around half the new spending that Labour had, and keeping spending increases to this level for more than a couple of years will be pretty bloody difficult. But we do need to get Government spending down to under 30% of GDP.

And Colin Espiner reports:

The Government remained committed to a new spending limit of $1.1b and was investigating a total spending cap, English said.

Total Crown spending is expected to reach $65b this year and rise by about $3b each year.

“Demand-driven” expenditure such as health and education, benefits, superannuation and KiwiSaver payments are not currently included in the Government’s sinking lid on public spending.

Under a total cap, any increases in expenditure would have to be offset by cuts in other areas or approved by the Cabinet. English said he was looking at “better and more coherent methods of knowing where spending is occurring and what the alternatives are”.

The Netherlands and Sweden had spending caps, he said. “We’ll be talking more about that in Budget 2010.”

I think the Fiscal Responsibility Act should be amended so that the Government has to set a target (like it does for CPI for the Reserve Bank) for spending as a percentage of GDP and for what level of surplus is desired. This would require political parties to be more transparent about what they propose. If Labour wants to spend an extra $6 billion a year, then they’ll have to be open about it, and let people see the consequences.

Tags: , , ,

10 Responses to “Labour should read Fallow”

  1. big bruv (13,316 comments) says:

    “If Labour wants to spend an extra $6 billion a year, then they’ll have to be open about it, and let people see the consequences.”

    Like that is ever going to happen.

    Vote: Thumb up 17 Thumb down 0 You need to be logged in to vote
  2. peanut (139 comments) says:

    If Labour wants to spend an extra $6 billion a year, then they’ll have to be open about it, and let people see the consequences”

    Expecting Labour to be open and honest is like expecting Hone to say he loves Pakeha. It aint going to happen.

    Vote: Thumb up 15 Thumb down 0 You need to be logged in to vote
  3. burt (7,828 comments) says:

    I think the Fiscal Responsibility Act should be amended so that the Government has to set a target (like it does for CPI for the Reserve Bank) for spending as a percentage of GDP and for what level of surplus is desired.

    And what would be the point of that DPF – it is not like the govt are expected to behave according to the current version of the Fiscal Responsibility Act. Last time I checked, blatantly ignoring it was rewarded with a top job at NZ Post.

    Vote: Thumb up 13 Thumb down 0 You need to be logged in to vote
  4. bchapman (649 comments) says:

    Practice what you preach DPF. Your post yesterday supported spending $2 bill on new roading projects.

    Do you also support funding the ETS out of the public purse?

    Fair enough you critique wasteful Labour spending on things like WFF, but what’s good for the goose….

    [DPF: I support roading being funded out of user-pays, and almost all of the funding is from petrol tax. As for the ETS, I am fairly comfortable with how the costs are allocated, as I suspect if we put the full costs onto trade exposed industries, we would lose more in reduced taxation as industry moves offshore]

    Vote: Thumb up 6 Thumb down 2 You need to be logged in to vote
  5. Gooner (995 comments) says:

    I think the Fiscal Responsibility Act should be amended so that the Government has to set a target (like it does for CPI for the Reserve Bank) for spending as a percentage of GDP and for what level of surplus is desired.

    Or we could pass ACT’s Taxpayer Rights Bill that effectively does this. It’s drafted and ready to go. What’s stopping National from doing this?

    Vote: Thumb up 9 Thumb down 2 You need to be logged in to vote
  6. Graeme Edgeler (3,267 comments) says:

    I think the Fiscal Responsibility Act should be amended so that the Government has to set a target (like it does for CPI for the Reserve Bank) for spending as a percentage of GDP and for what level of surplus is desired. This would require political parties to be more transparent about what they propose. If Labour wants to spend an extra $6 billion a year, then they’ll have to be open about it, and let people see the consequences.

    Actually, it wouldn’t require political parties to be more transparent. It would only require political parties in Government to be more transparent. The opposition could be as reckless as it likes!

    we could pass ACT’s Taxpayer Rights Bill that effectively does this. It’s drafted and ready to go.

    It may be drafted, but is it well-drafted?

    Vote: Thumb up 1 Thumb down 0 You need to be logged in to vote
  7. Danyl Mclauchlan (1,065 comments) says:

    It may be drafted, but is it well-drafted?

    Just because it’s written in crayon and covered in pictures of eagles, guns and exploding tanks doesn’t mean it isn’t a meticulously crafted piece of legislation.

    Vote: Thumb up 5 Thumb down 3 You need to be logged in to vote
  8. PaulL (5,874 comments) says:

    Meticulous, of course, has no value either. Meticulously drawing eagles, guns and exploding tanks says nothing about whether it does what it was intended to do (and, for that matter, whether people agree what it was intended to do was a useful thing to do).

    For my money, what it was intended to do sounded like a good idea, and I’m not sure that it matters how well drafted the legislation is if it goes to select committee anyway.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  9. backster (2,081 comments) says:

    Getting rid of the useless Commissions who indulge in commissioning useless expensive research papers that become objects of ridicule would be a good start and show the Government mean business.

    Vote: Thumb up 2 Thumb down 0 You need to be logged in to vote
  10. reid (15,970 comments) says:

    “I think the Fiscal Responsibility Act should be amended… and let people see the consequences.”

    The critical issue with the FRA is that the people who would be interested enough to analyse “the consequences” would make up IMO at a guess, about 3% of the voting population. That’s 97% who don’t give a toss and they’re the deciderers of the next govt.

    So to deal with that, I suggest you design the FRA so that it becomes some sort of prime time gladiator contest screened on TVNZ instead of the 6:00 o’clock news, with celebrity FRA referees determining whether or not the hapless Finance Minister/Shadow Spokesperson really is or isn’t, sufficiently responsible.

    Amusing and sometimes frightful consequences may or may not entail but meanwhile everyone would learn something about the economy and laugh and laugh all at the same time.

    My first suggestion is that as part of the opening sequence Gerry should body-slam Cunliffe “just cause he can” and I have many more if TVNZ are listening.

    Vote: Thumb up 2 Thumb down 0 You need to be logged in to vote

Leave a Reply

You must be logged in to post a comment.